Student complaints misleading

Associate Education (Tertiary Education)
Minister Steve Maharey has responded to inaccurate
allegations by the New Zealand University Students'
Association (NZUSA) about the setting of the 2001/02
headline interest rate.

The headline interest rate for the
2001/02 tax year, which was first set under a new formula
arising from the student loan interest rate review, was
announced on February 27th. Under the previous formula the
interest rate would have risen to 7.9%.

"NZUSA has drawn
attention to the fact that the new headline interest rate
includes a larger than usual inflation adjustment
(3.9%).

"This reflects the rate of CPI increase in
December 2000, which has always been the basis on which the
inflation adjustment was set. Contrary to NZUSA's claims, I
made this quite clear in a Factsheet issued at the time the
interest rate was announced (attached).

"NZUSA has
suggested that the 2001/02 interest rate has disadvantaged
low-income borrowers. In actuality, most borrowers are much
better off this year.

"The headline interest rate is the
highest rate that borrowers can possibly pay. Only a
relatively small minority of borrowers actually face the
headline rate, but those that do will benefit from lower
interest under the new formula.

"All full-time or
low-income part-time students benefit from a full interest
write-off. The abolition of interest for this group has
been a major initiative of the Labour/Alliance Government
and has cost over $400 million over 4 years."

"Another
group of students benefit from the new rule that at least
50% of repayments (above of the inflation adjustment) go to
pay off the principal, and any remaining interest is written
off.

"A minority of students, however, do face a reduced
base interest write-off this year because base interest is a
smaller proportion of the total interest rate than
previously. The impact of this varies from year to year
based on the rate of inflation," Steve Maharey
said.

Attached is the factsheet about the review of the
student loan headline interest rate setting formula that was
issued on 27 February 2001.

How did the
review of the student loan headline interest rate setting
formula come about?

The Government inherited the review
which was initiated following a period in which the student
loan interest rate was higher than the first home mortgage
rate for significant periods of time.

How has that problem
been addressed?

The Government has decided that the total
interest rate should be based on the average of the 10-year
bond rate for the December preceding the upcoming income tax
year. In the past, the 10-year bond rate has been averaged
over both past and forecast rates. While this has tended to
smooth out fluctuations in interest rates, it has meant that
the student loan interest rate has not been responsive
enough to movements in the market.

The interest
adjustment rate, a component of the total interest rate, has
also been based on more up-to-date information, with the
December CPI rather than the September CPI being
used.

What other changes have been made?

The margin
which is added to the average of the 10-year bond rate to
cover administrative costs, and the cost of the amount
expected to be written off on the death of borrowers, has
also been reviewed and will reduce from 0.9 percent to 0.8
percent.

So is this year's headline interest rate the same
as the rate for the previous year?

The combined effect of
these changes is that the total interest rate will not
change from its present level. However, the interest
adjustment rate will increase from its present level of 0.9
percent to 3.9 percent and, as the base interest rate is
simply the difference between the total interest rate and
the interest adjustment rate, it will decrease from 6.1
percent to 3.1 percent.

What will the changes to the
headline interest rate setting formula cost?

Because the
lower rate results from a change in the formula for
assessing the costs of the scheme to the Crown there is no
additional cost against the Government's operating
provisions.

In response to the challenges facing Scoop and the media industry we’ve instituted an Ethical Paywall to keep the news freely available to the public.
People who use Scoop for work need to be licensed through a ScoopPro subscription under this model, they also get access to exclusive news tools.

To ordinary wage and salary earners who (a) watch a slice of their gross income being taxed every week via PAYE and who also (b) pay GST on every single thing they buy, there has been something quite surreal about the centre-right’s angry and anguished reactions to the Tax Working Group’s final report... More>>

ALSO:

The New Zealand Infrastructure Commission – Te Waihanga – will be established as an Autonomous Crown Entity to carry out two broad functions – strategy and planning and procurement and delivery support. More>>

A single motel which charges up to $1,500 per week per room has received over $3 million worth of Government funds to provide emergency assistance, despite never having a Code Compliance Certificate – an offence under the Building Act – and receiving a series of longstanding complaints from occupants... More>>

“Tenure review has resulted in parcels of land being added to the conservation estate, but it has also resulted in more intensive farming and subdivision on the 353,000 ha of land which has been freeholded. This contributed to major landscape change and loss of habitat for native plants and animals,” said Eugenie Sage. More>>